Seminar on Derivatives (with Professor M.L.

Yueh): Part One 2006, Spring-Term

Topic 1: (Twice) General Characteristics of Financial Derivative Models Reading List:
1. Kwok Y.K. (1998), Mathematical Models of Financial Derivatives, Chapter 1. 2. Eric Briys, etc. (1998), Options, Futures and Exotic Derivatives, Chapters 1-4. 3. Smith, C.W., Jr. (1976),Option Pricing- a review, JFE, vol 3.,p.3-51. 4. S. Figlewski, A Laymans Introduction to Stochastic Process in Continuous-Time,, (1977), NYU, Working paper, p.1-36. 5. D.A. Pietea, (1989), A Shortcut to Ito Leman for Financial Applications: The Case of Hedging With Interest Rate Futures, Finance, P51-58. 6. R.K., Sundaram (1997), Equivalent Martingale Measure and Risk-Neutral Pricing: An Expository Note, Journal of Derivatives, p.85-98. 7. S.M., Sundaresan (2000), Continuous-Time Method in Finance: A Review and an Assessment, Journal of Finance, pp.1569-1622.. 8. Stulz, R.M., (2004) Should we fear Derivatives, Journal of Derivatives, Winter, pp. 1-18

Topic 2: (Once) Pricing Futures and Forwards Reading List:

1.Cox, J,C., j.e., Ingersoll, and S.A., Ross, (1981) The Relation between Forward Prices and Future Prices, JFE , P. 321-346. 2.Jarrow, R.A., and G.S., Oldfield, (1981) Forward Contracts and Futures Contracts, JFE, P. 373-382. 3. Richard, S., and M., Sundaresan (1981) a Continuous Time Modelof Forward and Futures Prices in a Multigood Economy, JFE, p. 347-372. 4.French, K., (1981) A Comparison of Futures and Forward Prices, JFE, p.311-342. 5.Park, H. Y., and A.H., Chen, (1985)Difference between Futures and Forward Prices: A Further Investigation of Marking to Market,, Journal of Futures Market, p.77-88.

Topic 3: (Once) Solving PDE for B-S Model Reading List:

1. Black, F., and M. Scholes, (1973), The Pricing of Options and Corporate Liabilities, Journal of Political Economy, p. 637-659. 2. Black, F., (1975), Fact and Fantasy in the Use of Options and Corporate Liabilities,
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Financial Analysts Journal, p. 61-72. 3. Merton, R.C., (1973), Theory of Rational Option Pricing, Bell Journal of Economics and Management Science, p. 141-183. 4. Smith, C.W., Jr. (1976),Option Pricing- a review, JFE, vol 3.,p.3-51. 5. Kutuer, G.W., (1988), Black-Scholes Revisited : Some Important Details, The Financial Review. P. 95-104.

Topic 4: Alternative Option Pricing Models Reading List:

1. Hull, J. and A. White (1987), The Pricing of Options on Assets with Stochastic Volatility, Journal of Finance, 42, pp.281-300. 2. Merton, R.C., (1976), Option Pricing When Underlying Stock Returns Are Discontinuous, Journal of Financial Economics, pp. 125-144. 3. Leland, H.E., (1985), Option Pricing and Replication With Transaction Costs, Journal of Finance, pp.1283-1301. 4. Rabinovitch, R., (1989), Pricing Stock and Bond Options When Default-Free Rate is Stochastic, Journal of Financial and Quantitative Analysis, pp. 447-457. 5. Amin, K., (1993), Jump-Diffusion Option Valuation in Discrete Time, Journal of Finance, vol. 48, pp. 1833-1863. 6. Boyle, P.P. and T. Vorst, (1992), Option Replication in Discrete Time with Transaction Costs, Journal of Finance, vol.47, pp. 271-294. 7. Benniga, S., Bjork, T., and Wiener, Z. (2002),On the Use of Numeraires in Option Pricing, Journal of Derivatives, pp. 43-54. 8. Navas, J., (2003), Calculation of Volatility in a Jump-Diffusion Model, Journal of Derivatives, pp. 66-72.

Topic 5: Pricing American Options

Reading List: 1. Geske, R. and H. Johnson (1984), The American Put Analytical Analysis, Journal of Finance, pp. 1511-1542. 2. Barrone-Adesi, G. and R.E. Whaley, (1987), Efficient Analytic Approximation of American Option Values, Journal of Finance, pp. 301-320. 3. Huang, J.Z., M.G. Subrahmanyam and G.G. Yu, (1996), Pricing and Hedging American Options: a Recursive Integration Approach, Review of Financial Studies, pp. 277-300. 4. Whaley, R. (1982), Valuation of American Call Options On Dividend Paying Stocks, Journal of Financial Economics, pp.29-58. 5. Broadie, M., and Detemple, J. (1997), Pricing American-style Securities using
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Simulations, Journal of Economic, Dynamic and Control, vol.21, pp. 1323-1352. 6. Duan, J.C. and Simonato, (1998), Empirical Martingale Simulations for Asset Prices Management Sciences, vol.44, pp.1218-1233. 7. Broadie, M., and Detemple, J. (2004), Option Pricing: Valuation Models and Applications, Management Sciences, vol.50, pp. 1145-1177.

Topic 6: Utility-Base OPM

Reading List: 1. Brennan, M.J. (1979), The Pricing of Contingent Claims in Discrete-Time Model, Journal of Finance, 34, pp. 53-68. 2. Rubinstein M (1974)., An Aggregation Theorem for Securities Markets, Journal of Financial Economics, pp.225-244. 3. Stapleton, R. and M. Subrahmanyam (1984), The Valuation of Multivariate Contingent Claims in Discrete Time Models, Journal of Finance. 4. Stapleton, R. and M. Subrahmanyam (1990), Risk Aversion and the Intertemporal Behavior of Asset Prices, Review of Financial Studies, vol. 3, pp. 677-693. 5. Camara, Antonio (2003), A Generalized of the Brennan-Rubinstein Approach for the Pricing of Derivatives, Journal of Finance, 58, pp.805-819. 6. Schroder , M. (2004), Risk-Neutral Parameter shifts and Derivatives Pricing in Discrete Time, Journal of Finance, vol. 59, pp. 2375-2401.

Topic 7: GARCH Option Pricing Models

Reading List: 1. Duan, J.C. (1995), The GARCH Option Pricing Models, Mathematical Finance, pp. 13-32. 2. Duan, J.C. (1999), Conditionally Fat Tailed Distribution and Volatility Smile in Options, working paper. 3. Duan, J.C. and Zhang, H (2001), Pricing Hang Seng Index Options Around Asian Financial Crisis-A GARCH Approach, Journal of Banking and Finance, pp. 19892014. 4. Duan, J.C., P. Ritchken and Z. Sun (2006), Jump Starting GARCH: Pricing and Hedging Options with Jumps in Return and Volatility, Mathematical Finance, vol.16, pp. 21-52..